Exclusive: Founders seek more time for ENRC bid - sources

May 31, 2013|Clara Ferreira-Marques and Megan Davies | Reuters

(Reuters Staff Reuters, )

LONDON/MOSCOW (Reuters) - The three billionaire founders behind miner ENRC have asked its independent board members for a three-week extension to a June 3 buyout bid deadline, seeking more time to iron out technical details, sources with knowledge of the matter said.

ENRC's founders said in April they were weighing up a buyout of minority investors in the mining group - a move that would take the company private and end a London adventure marked by bitter boardroom battles, corruption probes and an acquisition spree that left it with $5 billion of debt.

The trio - Alexander Machkevitch, Alijan Ibragimov and Pathokh Chodiev - also enlisted the support of the Kazakh government, a key investor in ENRC and London-listed copper mining rival Kazakhmys . Together, the bidding consortium holds around 54 percent of ENRC shares.

ENRC's independent directors, however, earlier this month rejected an initial, tentative offer - a buyout proposal in cash plus the government's shares in Kazakhmys that would value ENRC at around $5 billion. Instead, the board gave the trio until June 3 to come up with an improved bid or walk away.

But technical complications, including delays as shares are transferred from individuals to the bidding consortium, forced the trio and the Kazakh government to ask for more time.

"(The suitors) have contacted the (ENRC) board. What the answer will be is not certain, but if there is no extension, there can be no bid," one of the sources said.

A separate source added: "It would be madness for the board not to give enough time for a fully considered offer to be put together."

The board had already been asked for more time when a first extension was granted to June 3, but gave only 14 days.

"They always said 14 days was not going to be enough," the second source said.

NO INCREASE?

The sources said the delay was technical and not linked to issues around financing, with the cash element of the bid set to be secured by loans from Russian banks that are already major lenders to ENRC.

But two of the sources said a major increase in the proposal made earlier this month was not on the cards. That proposal, per share, had been worth 175 pence in cash plus 0.231 of a Kazakhmys share, or a total of just under 251 pence per ENRC share at Friday's Kazakhmys closing price.

ENRC's share price on Friday closed at just under 240 pence, indicating little expectation of an increase.

At those levels, the bidders may not get a full endorsement from the independent committee of ENRC's board, though that may be less than crucial for a company in which less than 20 percent of the shares are freely traded.

The price, two sources said, was a function of a financing structure designed not to leave ENRC or the bidders unable to sustain the debt load, making it closer to a leveraged private equity deal than an industrial conglomerate buying control.

The first source said the bidders would not bid against themselves in a situation where no rivals are likely to appear, for the sake of the independent board directors.

"The problem is that even if you increase it (10 or 20 percent), they'd still say no," the source said.

More critical will be the support of top shareholder, rival and kingmaker Kazakhmys, which owns a 26 percent stake in ENRC, and of Kazakhmys investors - which will ultimately have to vote to support or reject the company's position on the ENRC deal.

Sources familiar with the matter have indicated Kazakhmys would like an improved cash component, but is happy with the structure of the current proposal.

Even at current levels, the bid allows Kazakhmys to rid itself of a stake in ENRC in exchange for $890 million in cash and 77 million of its own shares.

"For Kazakhmys ... they get a cleaner shareholder register, don't have government involvement, have cash to pay down their debt - all those things for their own story are quite good," the third source said.

"That gets you over 75 percent, which means you can delist the stock. How many people want to stay in a delisted private Kazakhstan entity? I don't know, but I would assume it's a relatively small number."

The bidding consortium, ENRC, the independent committee of the board of ENRC and Kazakhmys declined to comment.